The Dutch Ministry of Finance on 16 January 2015 announced that the Swedish Tax Agency have confirmed that for purposes of Swedish withholding tax, a Dutch closed1 (tax transparent) mutual funds (fonds voor gemene rekening, or FGR) should be disregarded and its investors should be treated as direct owners of the investments made via the FGR.
Dutch mutual funds
An FGR is commonly used as an asset pooling investment vehicle for domestic and foreign pension funds and other investors. It is formed by a contract, usually called ‘‘conditions of management and custody,’’ entered into by a custodian and the investment manager.
An FGR is somewhat comparable to what is known in common law jurisdictions as a unit trust, although an FGR is neither a body corporate nor a trust and has no legal personality. The custodian, often a special purpose vehicle, holds the assets in custody (legal title), whereas the investors are the beneficial owners. An investment manager, which can be any (foreign) legal entity, is appointed to manage the assets on behalf of the investors. The investors are liable only for their commitment (as contractually agreed).
One advantage of an FGR is flexibility in the drafting of provisions of the agreement governing the fund. Depending on the terms and conditions of the fund agreement, an FGR can either be treated as taxable (for example, open) or as tax transparent (for example, closed) for Dutch tax purposes. In broad terms, an FGR is treated as closed if either the admission and substitution of investors requires the express prior written consent of all investors, or the participations can only be redeemed by the fund (open-ended investment fund). A closed fund may in principle freely issue new participations — that is, without the prior consent of the participants.
Swedish withholding tax
The Swedish Tax Agency has confirmed that the custodian of the closed FGR should be able to assist the investors in relation to exemption/reduction at source or refunds. Two forms are useful in this respect:
- Form SKV 3740, which may be used for reduction of withholding tax. It can be filed by the person entitled to the dividends or his/her representative; and
- Form SKV 2333, which may be used for claiming repayment of any excess tax withheld. It is clarified at the bottom of the second page, under “Information”, that a representative may file the application if a proxy is appended.
Mutual Agreement Procedure
In a supplementary explanation to the announcement of the Dutch Ministry of Finance, it is stated that if taxation does not take place in accordance with the provisions of the Netherlands / Sweden tax treaty, the competent authorities of the Netherlands and Sweden will, to the extent requested, start a mutual agreement procedure in accordance with article 27 of the Netherlands/Sweden tax treaty to resolve any double taxation.